Under rules to be proposed next week, banks would have to determine whether a customer understands the risks associated with buying government securities .

Industry representatives blasted the three banking agencies' plan, saying it would increase compliance costs.

"By putting all of these new parameters on banks, you've just added another checklist for a bank examiner to fill out," said Sarah A. Miller, senior government relations counsel at the American Bankers Association.

"It is not in banks' interest to screw their customers, because if they do, the customers just won't come back," she said.

Under the proposal, banks must take into account a customer's independent ability to evaluate the risks involved in buying government securities, including structured notes issued by government-sponsored enterprises.

Banks must also ask whether customers intend to use their own judgment, or rely on outside advisers, in making decisions regarding such investments.

While the rules would not explicitly require banks to document their compliance, they may have to defend their sales practices.

"We don't specify any documentation requirement," said William A. Stark, assistant director of supervision at the Federal Deposit Insurance Corp. "But for internal control purposes, the bank is going to have to keep files on its compliance."

Internal agency guidelines are currently used by examiners evaluating banks' sales of government securities. But the proposal would transform these guidelines into regulations that banks must obey.

The FDIC, Federal Reserve, and Office of the Comptroller of the Currency have been working more than a year on the plan, which stems from the Government Securities Act Amendments of 1993.

The interagency rule would be "substantially identical" to a recent National Association of Securities Dealers proposal, according to one banking agency official.

The NASD proposal, published by the Securities and Exchange Commission in the March 21 Federal Register, would require broker-dealers who are association members to determine whether investments are suitable for some institutional customers.

The agencies' proposal is expected to apply similar suitability requirements to bank sales of government securities, including Treasury bonds. It is expected to cover sales to both retail and institutional customers.

Bank regulators said they want their proposal to mirror the NASD proposal so as to create fair competition between broker-dealers who belong to NASD and those who do not.

"We basically want to have the same rules NASD has, the primary reason being we want to make sure there is a level playing field," said the FDIC's Mr. Stark. "We're aware of the competitive aspects for the marketplace, and we wouldn't want to have harsher rules for one party or another."

The industry is to get until mid-June to comment on the proposal.

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